- Additional £222 million charge taken for building defects and fire safety assessments
- Builder also swallows extra £20 million charge to cover poor work by a contractor between 2012 and 2015
- Total cost to Taylor Wimpey and its shareholders now exceeds £550 million
- Total bill for FTSE 100 and FTSE 250 builders now more than £3.5 billion
“As if input cost inflation, a Competition and Markets Authority investigation and a sluggish UK economy were not enough with which to contend, housebuilder Taylor Wimpey is still wrestling with the cost of fire safety investigations,” says AJ Bell investment director Russ Mould.
“The associated remedial activity will cost the FTSE 100 index member another £222 million and add on another £20 million provision relating to sub-standard work by a contractor over a decade ago and Taylor Wimpey’s total bill to fix sub-standard and defective buildings is more than £500 million since 2020.
“It also takes the total bill across the FTSE 100 and FTSE 250 housebuilders to more than £3.5 billion.
Source: Company accounts for Barratt Redrow, Bellway, Berkeley, Crest Nicholson, Persimmon, Taylor Wimpey and Vistry
“Many management teams present the charges to cover cladding remediation or other troubled, legacy projects as one-off items and strip them out of their ‘adjusted’ profits, but shareholders should not be fooled on either count.
“First, the provisions are hardly exceptional or one-off, as they keep recurring – Taylor Wimpey has booked charges of various sizes every year bar one since 2020. Second, there is a cost to shareholders, thanks to this big bill. This can be seen most clearly in how Taylor Wimpey’s net asset value has barely grown since 2020.
Source: Company accounts
“This is more than just a technical point of accounting. Since their earnings are cyclical and can be volatile, the housebuilders are often valued by analysts and investors on the basis of the tangible net asset value (NAV), also known as book value.
“Yes, there have been some share buybacks in some cases, including £151 million at Taylor Wimpey in 2022, but total NAV has not grown across the sector since 2021 and is some £3.3 billion down from the peak reached at the end of that year.
Source: Company accounts for Barratt Redrow, Bellway, Berkeley, Crest Nicholson, Persimmon, Taylor Wimpey and Vistry
“Falling NAV makes it harder for the shares to perform well, in capital terms, since a falling NAV increases the price-to-book or price-to-NAV multiple even if the share price is flat. This matters for a sector where the old analysts’ rule of thumb is that the builders may be cheap when they trade below one times book value and expensive when they trade at two times or more.
“The good news, at least, is that the accident-prone sector as a whole is held in such low esteem by investors that it now trades on an average 0.9 historic book value.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, LSEG data
“When the cycle turns, increased profits should mean net assets grow as profits flourish – providing the builders can keep out of trouble and avoid taking any more provisions for fire safety or defective buildings.”
